The rupee could rise to 50 levels in the near-term; the IT industry looks for stability in the currency; and even as revenue rises with a depreciating rupee, costs for the Indian IT companies also shoot up. These are some of the points that Mr Sujit Sircar, Chief Financial Officer, iGATE Patni highlights during a recent e-mail interaction with Business Line .
Excerpts from the interview:
Last year, the rupee depreciated from 45 levels to a low of 54. What did it mean for the IT industry in 2011?
Overall, a weaker rupee, while it is not good for the middle-class Indian who aspires for goods and services of an international quality, it actually tends to be relatively good for the Indian IT companies. However, because of the hedging positions that companies would have taken, there may not be an immediate positive impact.
While, in the longer run, the IT industry will stand to benefit and there will be an improvement in profitability if the rupee continues to depreciate, one must also bear in mind that inflationary conditions will result in cost pressure for the IT companies in the medium-term.
What is the typical hedging strategy of the IT industry in such times?
Because there has been so much fluctuation in the recent past, IT companies have moved from a longer tenure strategy to a more one-year kind of a view of the market.
Given that the October-December quarter has been when the rupee sunk to a new low, how will the numbers be for the IT companies in the quarter just gone by?
Operationally, I think that the rupee depreciation will impact the October to December quarter results of IT companies positively. There could be a 2 to 3 per cent gain in profitability. However, it must be noted that there will be a hedging loss that will need to be absorbed in the bottom-line.
What kind of impact would rupee depreciation have on the margins of IT companies?
Typically, depreciation by a rupee will have a 25-30 basis point positive impact on our margins.
Are global customers asking for lower pricing given the increase in value of dollar, especially since most of the Indian IT industry's business comes from the US?
While it is true that IT companies will achieve higher realisation because of the depreciation of the rupee and because a majority of our business accrues from the US and North America, one has to remember that costs like travel, power and general capital expenditure will go up.
In the future, there could also be wage pressures on the IT companies. The global customers are sensitised to this fact and hence we have not seen any pricing pressure as a result of the falling rupee as of now, also aided by the fact that has been a rapid depreciation.
What is the IT industry's outlook for rupee versus dollar in 2012? Where is your comfort factor in terms of rupee settling down at a certain level?
We do expect the rupee to rise to Rs 50 levels in the near-term, say over the next quarter. We would like stability in the currency as volatility in the currency becomes a challenging situation for the IT industry in terms of hedging and managing the costs.
What are your own hedging levels? What percentage of your revenues have you hedged and at what rate?
Currently we have hedged over 80 per cent of our revenues at around 49-50 levels.
InterviewsInsights.